Domestic Macroeconomic Policies and Private Fixed Capital Formation in Nigeria: A Var Approach

Abstract

The study has as its objectives, to determine the impact of macroeconomic policies on

private capital formation in Nigeria. In addition, the ~tudyso ught to evaluate ipso hcto

the pattern of responses of private investment to shocks on macroecononlic Policies. And

finally, to determine the causal ordering of the mediating variables connecting private

investment :?nd macroeconomic variables. The study applied the co- integrated vector

autoregressive framework. The first objective of the model was resolve by estimating the

short run dynamic en-or correction model. For the second objective, VAR nlodel was

estimated to determine the irnpulse response functions and variance decomposition using

Cholesky decomposition so as LO determine the response of private investment to shocks

on nlacroezonomic policies. Th,: third objective was resolved by conducting a granger

causality test. Fmpirical investigation revcal that nlacroecono~nic policies like, interest

rate policy, exchange rate policy, the size oi'tl~ep ublic sector, domestic credit policy and

the real COP growth plays a prominent role i r t~h e performance of private investment in

Niguia. The rcsults of both the dynamic short run model, impulse response and pair

wise Grangcr causality test rcvealcd that domestic credit to thc private sector exerts a

more signilicant influencing on the performance of the pr ivatc investmerlt. The study

rtcornmends that the expansion of the banking sector loanable fund to the private sector

sho~lld bc at the heart of the monetary policy design in Nigeria. In addition, the ternls on

which bardkg sector advances are extended to private investors should be reviewed and

efhrts should be intensified to wipe oflall unofficial parallel markets or the so-called

black markot since they facilitate not only faster depreciation of the Naira through round

tripping there by facilitating facilitate huge capital flight and illegal transrer of funds.